Wealthy investor Steve Mandel divests Microsoft shares to invest in a thriving Artificial Intelligence (AI) company, which has escalated by almost 800% over the past ten years.

Wealthy investor Steve Mandel divests Microsoft shares to invest in a thriving Artificial Intelligence (AI) company, which has escalated by almost 800% over the past ten years.

In the dynamic world of technology, two giants, Amazon and Microsoft, continue to dominate the landscape, particularly in the rapidly growing AI sector.

According to recent reports, Amazon's profits are expected to grow at a significantly faster rate than Microsoft's over the long term. This trend suggests that Amazon's stock could outperform Microsoft's, a prediction bolstered by the performance of Amazon Web Services (AWS), the company's cloud computing arm.

AWS, a critical part of the Amazon investment thesis, is experiencing a significant boost from AI, making it a strong stock pick in the AI space. In Q2, AWS's sales rose 17% to $30.9 billion, accounting for about 18% of Amazon's total revenue but making up 53% of its operating profit.

The largest AI-related revenue stream for Amazon comes from AWS. The trend of Amazon's improving margins and rapid operating income growth, driven in part by AWS, is expected to continue for several years.

Meanwhile, Steve Mandel's hedge fund, Lone Pine Capital, sold off about 5% of its Microsoft shares in Q2. Mandel sold his Microsoft shares as part of a continued reduction in large US tech stocks, reallocating capital to Amazon likely due to Amazon's stronger growth prospects or strategic positioning in comparison to Microsoft during that period. Some of the funds from the Microsoft sale were invested into Amazon stock.

Despite the potential for Amazon to outperform Microsoft, neither stock should be considered a poor investment choice in the AI space. Both Microsoft and Amazon are solid AI picks, each offering unique opportunities for investors.

Amazon's profits also come from a significant portion of AI-related revenue streams. The company's advertising service business units, along with AWS, are the fastest growing in Amazon. The steady improvement in Amazon's margins, driven by these business units, further underscores the company's strong position in the AI sector.

In terms of valuation, Microsoft and Amazon trade at similar forward price-to-earnings ratios, indicating that the market recognises the potential of both companies in the AI space.

In conclusion, while both Microsoft and Amazon are strong contenders in the AI sector, the growth prospects and strategic positioning of Amazon, particularly AWS, make it an attractive investment choice for those seeking to capitalise on the rapid growth of AI technologies.